Strong market, gift push UA endowment past $1B
FAYETTEVILLE — A big boost in August from the Walton Family Charitable Support Foundation and a year of double-digit investment returns have lifted the value of endowment assets supporting the University of Arkansas, Fayetteville beyond $1 billion, the university announced Thursday.
The $120 million Walton gift supporting arts education came after the June 30 close of the school’s fiscal year, a 12-month period that saw UA’s endowment assets increase in value to $996 million, the university said. The total at the close of the previous fiscal year was $898.9 million.
University endowments function as permanent savings funds, with about 5 percent of the endowment spent every year in areas including academic programs, endowed positions such as academic chairs, and fellowships and scholarship aid for students. The University of Arkansas Foundation manages assets for the Fayetteville campus and some others in the UA System.
“This is a major milestone and to be celebrated because the health of our endowment is an indicator of future success and security for the university,” school Chancellor Joe Steinmetz said in a statement that called the endowment “our nest egg” and asserted that it’s “more important than ever to have a strong endowment as we aim to keep tuition as low as possible and redouble student success efforts.”
A precise total was not released, but with endowed assets topping $1 billion — breaking that threshold in July, UA spokesman Mark Rushing said — the university meets a goal first set more than a decade ago under Chancellor John White,
who wanted to reach the billion-dollar mark by 2010.
The past 10 years have seen ups and downs for UA and many university endowments, however. The endowment supporting the Fayetteville campus reached $876.8 million at the close of fiscal 2007, then two years later dropped to $612.2 million after the stock market tumbled during the most recent economic recession.
It wasn’t until fiscal 2014 that UA’s yearly endowment total surpassed its value at the close of fiscal 2007.
While other schools also saw dips, UA, Fayetteville has in recent years seen its ranking slip in the annual endowment survey by the National Association of College and University Business Officers and Commonfund Institute.
The group will not release its annual report including 2017 data until January, and UA will not be listed among schools with billion-dollar endowments because the report is based on values as of the close of fiscal 2017.
UA’s 2016 ranking in the report slipped three spots to 103rd among U.S. and Canadian institutions. That followed a 5.2 percent drop in the endowment’s market value over the 12-month period that ended June 30 of last year, the value falling because new endowed gifts failed to offset investment losses.
Other schools also reported declines in fiscal 2016, though, on average, not as large. An Arkansas Democrat-Gazette analysis of National Association of College and University Business Officers and Commonfund Institute data from the report found that for schools like UA with an endowment value between $500 million and $1 billion, the average decrease was 3.7 percent.
The University of Arkansas Foundation oversees funds in an “investment pool” that includes Fayetteville campus assets. The most recent fiscal year saw investment returns of 15.4 percent, the university announced.
Over the same 12-month time period, the Standard & Poor’s 500 stock index saw a one-year return of 15.46 percent according to data from YCharts, a financial data research website. The stock index encompasses 500 top U.S. companies and is considered a benchmark economic indicator.
Rushing said in an email that the UA Foundation’s investments include both equities and bonds. The investments pool is considered to have less risk and should not be compared only with the S&P 500, Rushing said.
He said that among schools that have announced endowment returns, only a few have reported returns above 15 percent, “making this return rate impressive.” Rushing noted that Harvard has reported an 8.1 percent investment return on its endowed funds.
Ken Redd, director of research for the National Association of College and University Business Officers, said comprehensive data remain unavailable but he expects typical investment gains for schools to be in the 10-15 percent range.
The UA Foundation’s investment objectives, according to its most recent financial report, are to support higher education and to “enhance the purchasing power by generating an average annual real total return (net of investment management fees) in excess of the spending rate over the long-term with minimal return volatility.”
The foundation paid about $3.8 million in custodial and investment advisory fees for the 12-month-period that ended June 30, according to Rushing. The amount is an increase from the approximately $2.2 million listed in a 2016 financial report for the same type of fees.
About 38 endowments for public universities or public university systems have endowments of greater than $1 billion according to the most recent comprehensive data, said Steven Bloom, director of government relations for the nonprofit advocacy group the American Council on Education.
Redd called it “a rare thing to happen, so it’s quite an achievement.” Ninety-three schools had 2016 endowment funds valued at more than $1 billion, according to the annual survey of the National Association of College and University Business Officers.
Endowment assets cannot be spent solely to lower college costs, Bloom said.
“Endowments are made up of hundreds, sometimes thousands of separate funds,” Bloom said. Generally, such funds must be spent in accordance to specific agreements with donors, Bloom said.
The UA Foundation distributed to or on behalf of the University of Arkansas, Fayetteville campus more than $50 million in fiscal 2017, Rushing said, including funds for a scholarship program known as Advance Arkansas.
“These scholarship endowments benefit academically promising students from Arkansas that have financial need with scholarship support ranging from $4,000 to full tuition awards. Advance Arkansas endowed scholarships help the university recruit, retain and graduate Arkansas students. That’s just one example of the many vital positive impacts the endowment provides for the university on a continual basis,” Rushing said.